Saturday, July 5, 2014

Disruptive Innovation Revisited

Disruption and disruptive innovation have been in the
spotlight of late. The guru of disruptive innovation, Clayton Christensen, and
his famous theory were put under the scanner in a highly critical if somewhat
flippant recent piece by Jill Lepore in the New Yorker. Just a few weeks earlier,
the New York Times carried a provocative article titled “Business School,
Disrupted,” that examined the potential of MOOCs to change management education
and chronicled the troubled efforts of arguably the world’s strongest business
school brand, Harvard Business School, to embrace MOOCs.

Is the problem with disruptive innovation or innovation
itself?

Though Lepore’s article is ostensibly targeted at disruptive
innovation, her grouse seems to be with innovation itself. She chronicles how
“progress” used to be the ideal, till the notion of “progress” got discredited
because of the many negatives that came along with it (atom bombs, for
instance). Today, innovation has become the holy grail even though innovation can
result in several unanticipated negative consequences.

As someone who has beaten the innovation drum for close to 2
decades now, I have to admit that some of this criticism is justified. The word
innovation is used quite indiscriminately these days because it’s the “in
thing.” I remember grimacing when I once read a report on the Indian BPO
industry that gushingly identified picking up and dropping employees at home as
the most important innovation of the industry! But, many people are sensitized
to this debate – whenever I try to define innovation in my class these days, we
end up having a lively discussion about the difference between improvement and
innovation. I must admit that in keeping with the times, and reflecting the
importance of small changes in most business contexts, my own definition of
innovation has become much broader over time (see below)!

Innovation can be criticized on several counts including a
propensity to create needs that are not fundamental, being wasteful of
resources, and, at times, acting as a smokescreen for other less desirable
activities. The best example of this last one is the success of the
pharmaceutical industry in justifying high prices for drugs in the name of
innovation, when some studies have shown that what really pushes up the price
of drugs is the marketing activities undertaken by these companies (that these
marketing practices are often far from kosher is another dimension of this
story!).

Lepore’s criticism

But Lepore’s main target is disruptive innovation. Much of
her criticism is targeted at the process of Christensen’s theory-building. She
cites examples from Christensen’s own work to try to establish that disruptive
innovation is not based on strong empirical evidence. She faults it for not
being predictive, pointing out that Clayton Christensen predicted that the
iPhone would not be successful! She accuses Christensen of picking and choosing
data to suit his theory, and suggests that the cases he cites don’t take alternative explanations into account.

Some of this criticism may be unjustified. As far as I can
make out, there is no “theory” of disruptive innovation. It’s an interesting
concept, particularly when it is contrasted with “sustaining” innovation (for a review of disruptive innovation, see my earlier post. Incidentally, this
is the post on my blog that has the highest number of hits!). Christensen
advanced the concept of disruptive innovation as an explanation for why several
successful companies failed.

In fact, disruptive innovation can be subject to legitimate
criticism, but not along the lines of many of Lepore’s arguments. Christensen
sees disruptive innovation as a new way of doing things that is often inferior
to the existing way, but one which advances rapidly thereafter, so much so that
it can overtake the sustaining innovation trajectory at some point. One of the
difficulties I have always found is identifying which (potentially) disruptive
innovation will actually succeed and which will fizzle out.

Which disruption will succeed?

MOOCs is a good example. Plain vanilla online learning has
been around for some time, and the demise of education as we know it has been
predicted for the last 15 years. But, the first phase of online learning proved
to be a complement to conventional education rather than a substitute. It’s
only in the last few years that the improvement in streaming technologies and
the huge increase in the availability of low-cost internet bandwidth have
resulted in the take-off of MOOCs. Interestingly, MOOCs are still dependent on
the teacher, only you now see her in video streamed from the MOOCs site.

However, even today, the jury is out as to whether MOOCs
will replace classroom education. MOOCs seem to work well for self-motivated
adult learners but there are many aspects of education that can’t be achieved
through MOOCs such as socialization, working in groups, and values.

Lepore is critical of the way people tend to see disruption
lurking everywhere. But, there are two reasons why disruption has become a part
of our everyday lexicon. The first is that the internet has been a trigger for
disruption in different industries and product categories. Particularly where
the product itself is digitisable (books, movies, photos, music, etc.), the
internet has clearly acted as a force for disruption. The second is related to
cost and reach. The focus on reaching out to price-sensitive “unserved” or
“under-served” markets (the so-called “bottom of the pyramid”) has led to
people trying to discover ways of delivering products and services shorn of
frills, and at the lowest cost possible. This has inevitably led to attempts to
“disrupt” markets in the way that Christensen suggests. But, though this sounds
easy, it’s not so in practice as several efforts have shown (see, for example,
my earlier post on chotukool).

Tailpiece: What can we learn from this episode?

There may be a lesson for would-be management gurus from the
Christensen experience. He has become an easy target because he appears to be a
“one-trick pony,” known for disruptive innovation and nothing else. Contrast
this with Michael Porter (5-forces framework, generic competitive strategies,
competitive advantage of nations, clusters, CSR and shared value) and CK
Prahalad (strategic intent, core competence, bottom of the pyramid) and you
realize the difference. Both Prahalad and Porter moved on to other ideas, and
such portfolio diversification made their reputations less vulnerable to sniper
fire!

1 comment:

I feel that "disruptive innovation" is a useful lens. However, when it is looked as a predictive model then things start getting murky. Clayton Christensen feels that it is a predictive and admits he failed to judge the disruptive nature of iPhone. Why? Because he framed the problem incorrectly. (See his interview). In my opinion, Christensen does not see "prediction disability" of human mind yet. It is a fundamental error. Even Joseph Schumpeter realized his mistake in the penultimate year of his life and talked about the principle of indeterminateness in one of his last public lectures.